Thanks to the Oil Drum, I read about an interesting fact. Andris Piebalgs, the European Energy Commissioner published this month an interesting post on his blog stating that oil production may have already peaked.

One of the few good pieces of news in the current economic crisis (maybe the only one) is that oil prices have gone from the 147$ a barrel of July 2008 more than 100$ down to less than $50 a barrel on the international markets. However, in the last days we have seen oil prises rising and reaching the price of $58 a barrel for the first time in nearly six months. (…)

However, we should not be under any illusion. The current fall of oil prizes is just the consequence of an even more dramatic fall in demand due to economic crisis. I add to that the fears in the financial markets you will understand why investments in futures of any commodity except the safest ones (gold, for instance) are so rare. But the fundamentals that drive the energy markets have not changed. Once the economic crisis is over demand for hydrocarbons will soar again, particularly in the developing world. (…)

The world is aware that the production of the existing oil wells is decaying and that new discoveries are more scarce and more expensive. Some experts consider that global oil production may have peaked at 94 million barrels a day. The current economic crisis can make the situation worse. The lower prices that we are enjoying now can be in fact bad news. At this price oil producers have been forced to postpone many necessary investments in new production capacity. These investments take decades to be accomplished. In consequence, if the current economic crisis finished and demand recovers we could be facing huge shortage of supplies that can lead to extremely high prices.

How high? According to the Secretary General of the International Energy Agency (IEA), Nabuo Tanaka, oil prices could go up to as much as 200$ a barrel in the next 4 years. A quick look back on the situation of last year when prices were at a mere 147$ a barrel maybe gives an idea of what the consequences may be if the prices goes a 25% higher.

The current relatively low oil prices give a respite to prepare for the coming new oil crisis. We have to reduce our dependency in all those areas in which black gold is not indispensable, such as heating, or electricity production. For those areas which will have to continue to depend on it, like transport, we need to accelerate the research for alternatives, like biofuels, electric cars or hydrogen. And in all sectors, we have to accelerate our efficiencybeing aware that every barrel of oil that we are using is one of the last.

It is difficult to forecast when the next oil crisis is going to come. As Nobel Price Niels Bohr once put it “prediction is very difficult, particularly about the future”. But one thing is certain, one day we are going to run out of oil, and to prepare for that day we may be running out of time.

One thought on “European energy official: oil may have peaked”

Again, I think it’s better to note that conventional crude oil production peaked in May 2005; any boosts since then have come from biofuels, tar sands, coal-to-liquids and so on. The distinction is important because those other ways of getting oil use large amounts of other fossil fuels (gas to boil tar sands), cause heavy environmental damage (tailings from tar sands, deforestation) and contribute more heavily to global warming (deforestation).

Secondly, those unconventional liquids, we simply can never get as much of them as we have conventional crude oil.

The third reason to make the distinction is that if the peak were just last year, we don’t truly know it was the peak. For example, in this case right after the July 2008 peak we really saw the global recession kick in. Thus, demand dropped. Well, what does a producer of a good do when demand drops? They produce less. So a July 2008 peak may not be a “true” peak; if the world economy recovers, production could end up higher than that.

Whereas if we focus on conventional crude oil and its peaking in May 2005, we realise there are physical limits. In bad economic times, everyone ignores physical limits and says, “well even if there are physical limits, because of the economy we’re far from them now, we don’t have to worry about it.”

It’s important to realise physical limits. Your quoted article is by Piebalgs, and he’s never expressed an understanding of physical limits. For example, one of his earliest blog entries is promoting biofuels. He realised that the EU could never produce enough biofuels to keep everyone zipping around in their cars, so he supported importing biofuels from places like Nigeria and Brazil. Exactly what the Nigerians and Brazilians were supposed to use to drive around was unclear; and he became very vague and defensive when the topic of deforestation came up.

He also implies that much of the economic crisis was caused by high oil prices last year. However, that’s not been demonstrated. The existence of debts several times larger than the world economy, and the sudden realisation that these were bad debts, seems a much better prospect for a single cause; but the actual causes are several, of course.

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About Edouard

A recent MBA graduate in Sustainable Business and Energy at Presidio Graduate School, Edouard has a passion for transitioning businesses and communities to a carbon neutral future. Experienced in Marketing and Energy, he is currently for hire. Learn out more.